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WWW.BNE.EU
Leading Russian supermarket chain
Magnit buys rival Dixy
Baltic states want to ensure the
golden goose keeps producing
unicorns
June 2021 Mongolia’s apocalyptic sandstorms
Money laundering pushes up property
prices in Western Balkan cities
PUTIN BOXED IN
BY LUKASHENKO
10 megatrends shaping Meet “The Botox”, Kyrgyzstan’s gold grab
emerging Europe in the the mafia boss who’s p.62
post-pandemic 2020s singing like a canary
ISSN 2059-2736
p.38 about the Erdogan
regime on YouTube
p.52
2 I Contents bne June 2021
Senior editorial board
Ben Aris
editor-in-chief & publisher I Berlin
20
+49 17664016602 I baris@bne.eu
Clare Nuttall
news editor I Glasgow
+44 7766 513641 I cnuttall@bne.eu
William Conroy
editor Eurasia & SE Europe I Prague
+420 774 849 172 I wconroy@intellinews.com
———
Subscriptions
Stephen Vanson
5 18
London I +44 753 529 6546
svanson@intellinews.com
——— COMPANIES & MARKETS
Advertising
4 Poland says it will not 17 Russian supermarket business
Elena Arbuzova
business development director I Moscow
comply with EU court’s order rapidly consolidating as Lenta buys
+7 9160015510 I earbuzova@bne.eu to stop Turow mine Billa Russia to become second-
——— largest chain in Moscow
5 Hungary turns down EU's
Design
€9.4bn recovery fund 18 The average income of couriers is
Olga Gusarova credit line up to twice the average regional
art director I London
salary
+44 7738783240 I ogusarova@bne.eu
6 Centerra files arbitration suit
as Kyrgyzstan moves to seize 19 Baltic states want to ensure the
Please direct comments, letters, press releases Kumtor gold mine golden goose keeps producing
and other editorial enquires to editor@bne.eu
unicorns
7 Russian ice cream
All rights reserved. No part of this publication consumption to hit new 21 Turkey may be ripe for external
may be reproduced, stored in or introduced to any
record of 3.1kg per person debt crisis says Wells Fargo
retrival system, or transmitted, in any form, or by
any means electronic, mechanical, photocopying,
recording or other means of transmission, without 8 What happens if Russia’s 22 After a new acquisition, Sber wants
express written permission of the publisher. The mortgage subsidy to become a central player in the
opinions or recommendations are not necessar-
ily those of the publisher or contributing authors,
programme ends? Russian digital music market
including the submissions to bne by third parties.
No liability can be attached to the publisher for 11 Serbia aims to boost energy 22 Bulgaria to get region's most
these comments, nor for inaccuracies, errors powerful supercomputer
and mining sector to 10% of
or omissions. Investment decisions or related
actions taken on the basis of views or opinions GDP in 10 years
that appear herein are the responsibility of the 23 Russia’s weather goes crazy
reader and the publisher, contributors and related 12 Turkey’s TAV seals buyout
parties cannot be held liable for these actions.
of 85% stake in Almaty 25 Global warming will open up
bne Intellinews is published by International Airport Russia’s Far North to agriculture
Emerging Markets Direct OU over next two dec-ades
13 Bucharest Stock Exchange
Print issue: sets new records as it 26 Lukoil oil spill headed towards
£4.50 /$6.75 /€5.90 . €499 / year shrugs off the coronacrisis the Barents Sea
15 Leading Russian 27 The EU’s Green Deal: Putting
Follow us on supermarket chain Magnit a carbon price on imports
twitter.com/bneintellinews buys rival Dixy
Sign up to FREE electronic version
of bne monthly magazine OR buy
a print subscription at
bne.eu/subscribe
bne June 2021 Contents I3
41 46 54
COVER FEATURE EASTERN EUROPE
31 Putin boxed in by Lukashenko 54 Belarus forces a Ryanair
commercial plane to land
34 EU to target Belarusian in Minsk and arrests top
potash exports opposition Nexta journalist
57 Russia and US to kiss and
make up? Blinken and
CENTRAL EUROPE Lavrov meeting in Reykjavik
38 10 megatrends shaping
emerging Europe in the post-
59 Russian business confidence
index rises to zero for the
71
pandemic 2020s first time in eight years
41 Central Europe joins the EV 61 Belarus introduces new
revolution restrictions on political 71 Kazakhs’ loathing of
parties and media encroaching China rises
44 Czech former president Vaclav as Lake Balkhash falls
Klaus reportedly secretly sent
a loan to Soviet Un-ion after 74 Philanthropy in Russia –
revolution EURASIA not for the faint-hearted
45 Romanian, Polish presidents 62 Kyrgyzstan’s gold grab
call for stronger Nato
presence on the eastern flank 65 Mongolia’s apocalyptic NEW EUROPE IN NUMBERS
sandstorms
77 Russia’s Watcom shopping
index stages recovery in
SOUTHEAST EUROPE April and May, shopping only
OPINION 10% below 2019 levels
46 Money laundering pushes up
property prices in Western 68 The five Stans back in the
Balkan cities Game
49 Tourism’s long road to recovery 70 Uzbekistan’s Capital Markets
Development Agency
52 Meet “The Botox”, the mafia restructured as privatisation
boss who’s singing like looms
a canary about the Erdogan
regime on YouTube
4 I Companies & Markets bne June 2021
Mining must stop at Turow immediately until the Court of Justice of the EU (CJEU) reviews the Czechs’ complaint against plans to expand the mine.
Poland says it will not comply with EU
court’s order to stop Turow mine
Wojciech Kosc in Warsaw
P
oland is in for another major tussle with the EU after scope of the concession”, it does not need an environmental
the bloc’s top court issued an interim measure on May impact assessment.
21 to stop lignite mining at the Turow mine near the
border with Czechia. Poland says it will not comply because However, the CJEU said that the law in question may well
of energy security issues. infringe the EU’s Environmental Impact Assessment (EIA)
Directive.
Mining must stop at Turow immediately until the Court of
Justice of the EU (CJEU) reviews the Czechs’ complaint “It cannot be ruled out … that the Polish legislation infringes
against plans to expand the mine, as put forward by its the requirements of the EIA Directive, according to which, in
operator, Poland’s state-controlled power company PGE. substance, the extension of an open-cast mining project must
be subject to an environmental impact assessment or, at least,
In early 2020, Poland allowed PGE to keep mining lignite prior verification of the need for such an assessment,” the
– which feeds the adjacent Turow power plant, a major court said in a statement.
installation supplying up to 7% of Polish electricity – until 2026.
In a typical lignite mine-power plant set up, lignite must be “It cannot be ruled out … that the
fed to the plant on the spot, as it cannot be moved so easily
as coal, for example on trains. Polish legislation infringes the
The Czechs filed their lawsuit at the CJEU in February, claiming
requirements of the EIA Directive,
that Poland granted the extension of the mine’s operations according to which, in substance,
without carrying out an environmental impact assessment.
the extension of an open-cast
Poland says that the assessment was not necessary. In line mining project must be subject to an
with Polish law, if a mining extension is “motivated by
rational management of the deposit without extending the environmental impact assessment”
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bne June 2021 Companies & Markets I 5
The court also listened to the Czechs’ argument that to Czechia welcomed the court’s decision although it does not yet
keep mining in Turow will likely mean considerable mean that the final verdict will shut down the Turow mine –
outflows of groundwater from the Czech Republic to and the Turow power plant – for good.
Poland. Open cast mines like Turow typically cause such
outflows from nearby locations. "Mining activity not only has a negative effect on the rights
of the citizens at the Czech-Polish border to water as mining
Poland promised to build a screen to keep water on the Czech affects the groundwater level, but also on the quality of the
side but its construction will not be completed until 2023. environment and property of the citizens," Czech Environment
The damage to the water table that will take place by that Minister Richard Brabec said, according to Reuters.
time is not reversible, the CJEU noted.
Poland hinted very strongly it would not comply with the
The CJEU also dismissed Poland’s argument that shutting CJEU’s interim measure.
down the Turow power plant, which would inevitably ensue
once mining is stopped, would pose a threat to the stability “The Polish government will not take any actions that could
of energy supply. jeopardise Poland's energy security,” Prime Minister Mateusz
Morawiecki said in a statement.
“The electricity network operators are able to balance
the electricity network in order to compensate for such Poland derives around 70% of its electricity from coal- and
unavailability,” the court said. lignite-fired power plants and only plans to wean itself off
the commodity completely by 2049.
Hungary turns down EU's €9.4bn
recovery fund credit line
bne IntelliNews
H
ungary has decided at the last minute not to take any in practice," adding that that was linked to "systemic
loans under the EU's Recovery and Resilience Facility irregularities" that "led to the highest financial correction
(RRF), meaning that it has had to redraw its recovery in the history of (EU) structural funds in 2019".
fund plans, for which the official deadline was April 30.
By contrast, the Hungarian government is painting its decision
Hungary will avail itself of the full amount of grant money not to draw the credit line as coming from its commitment to
available to the country in the framework of the RRF, but fiscal probity, despite the fact that it has taken out some much
would draw the RRF credit line only for project-based more expensive loans from Russia and China in recent years.
financing on a case-by-case basis, cabinet chief Gergely
Gulyas said in a weekly press briefing on April 29. "Hungary is among those countries in the European Union
that believe the crisis should be managed with as little
Under the RRF, Hungary could receive HUF2.5 trillion indebtedness as possible," Gulyas said, adding that the
(€6.9bn) in grants and HUF3.4 trillion (€9.4bn) in loans. government can still tap the loans until the end of 2023.
The decision follows talks between Prime Minister Viktor
Orban and European Commission President Ursula von der
Leyen on the NextGenerationEU recovery plan last Friday.
There has been no detailed read-out of those talks but
according to media reports the Hungarian strongman was
told that drawing RRF money would require an overhaul
of the country's deeply corrupt public procurement process.
Hungary has denied an earlier Reuters story that said the
Commission was deeply worried about public procurement
in the country and that it had demanded reform before
the Orban government could access the new funding line.
Prime Minister Viktor Orban discussed the use of the EU's NextGenerationEU
According to the leaked EU report seen by Reuters, the fund with European Commission President Ursula von der Leyen on April 23
country's "competition in public procurement is insufficient in Brussels.
www.bne.eu
6 I Companies & Markets bne June 2021
Hungary sold some HUF2.3 trillion in FX bonds last year higher education institutions to private foundations headed
and is set to take out a further HUF4.5 trillion in loans in the by political appointees is raising concerns in Brussels. The
coming years on projects like the Russian expansion of the government planned to use some HUF1.5 trillion of the
Paks nuclear power plant, the construction of the Budapest- HUF5.9 trillion on university developments.
Belgrade railway line and the establishment of the campus of
China's Fudan University. State debt surged to HUF38.4 trillion The EU recovery plan's focus has drawn fire from goverment-
last year to 80% of the GDP with a 15pp spike. controlled media. The EU set guidelines for using the funds,
including promoting the green transition, smart, sustainable
Orban’s U-turn means that the country's entire recovery and inclusive growth and fostering social and economic
plan has to be rewritten and universities could be the biggest cohesion among others. It also made social consultation
victims of the cutback, analysts commented, particularly now a prerequisite but representatives of local governments, of
that many of them have been put under an opaque foundation which many are led by opposition parties, say there was no
structure. Legislation on the transfer of the vast majority of meaningful discussion about the use of EU funds.
Centerra files arbitration suit as Kyrgyzstan
moves to seize Kumtor gold mine
Kanat Shaku in Almaty
C
anada's Centerra Gold on May 16 filed an international executive of Toronto Stock Exchange and NYSE listed
arbitration suit in an attempt at stopping the Kyrgyz Centerra, said in a statement.
government from taking further steps to nationalise the
Kumtor gold mine. Bishkek has also hit Centerra’s subsidiary Kumtor Gold Company
with a $170mn tax claim, a claim the company is disputing.
The move came in response to Kyrgyzstan’s President Sadyr
Japarov signing into law a bill opening the way to a state The government’s actions have sent ripples of alarm, unsettling
takeover of Kumtor and a $3bn fine for environmental damage international financial institutions working in Kyrgyzstan.
issued by a Kyrgyz court. It is expected that Kyrgyzstan’s
parliament will on May 17 appoint independent managers In a joint statement, Canada and the UK warned last week
to run Kumtor for three months. The weekend saw Centerra that measures that “negatively impact trade and foreign direct
Gold’s offices in the country raided, with documents seized. investment will further undermine already fragile economic
livelihoods of the Kyrgyz people”.
It is not uncommon for new Kyrgyz governments to harass
Kumtor's operator, while ignoring any agreements reached by Hit hard by the coronavirus pandemic, Kyrgyzstan became one
the previous regime, but the current regime – consolidating of the first countries to apply for emergency funding from both
around nationalist firebrand Japarov, who last year took the the World Bank and the IMF.
helm from toppled ex-president Sooranbai Jeenbekov after his
supporters busted him out of prison – has moved swiftly and
heavily against Centerra.
The Kumtor open pit mine, which produces over 500,000 ounces
of gold per annum, is Kyrgyzstan’s single largest contributor to
GDP. It accounts for approximately 5-7% of national output.
The enterprise behind the mine, located at an altitude of 4,000
metres in the vicinity of glaciers in the Tian Shan mountains, also
amounts to Kyrgyzstan's largest employer and taxpayer.
“Astonishing speed”
“The leadership of the Kyrgyz Republic has acted with
astonishing speed since the beginning of this year to
undermine the basis on which the Kumtor Mine has been
operated and has refused to engage with us on any matters The mine is located at an altitude of 4,000 metres in the vicinity of glaciers in
it considers to be the subject of dispute,” Scott Perry, chief the Tian Shan mountains.
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bne June 2021 Companies & Markets I 7
“Kyrgyzstan is in a terrible economic situation, it totally process of a state takeover of Kumtor Gold Company.
depends on external support. And the international response
will be harsh. If the funding stops, Kyrgyzstan will be in “We believe that any such decision would put in doubt the
trouble. This country cannot afford to lose it,” the Financial commitment of the Kyrgyz Republic to stand by its obligations
Times quoted an anonymous foreign source working with the to its international partners and foreign investors. It risks the
government and previously associated with Kumtor as saying. country’s economic recovery and its reputation as a secure
place for investors to operate,” the EBRD said.
Kyrgyzstan saw its GDP shrink by over 8% in 2020 amid the
impact of the global pandemic and lockdown measures. It is The EBRD said it would work with its shareholders, the foreign
the second poorest country in Central Asia, being only slightly and domestic business community and other international
better off than Tajikistan. financial institutions to highlight the negative consequences
of Kyrgyzstan’s course of action and to mitigate its impact.
EBRD’s “deep concern”
The European Bank for Reconstruction and Development “The EBRD is committed to working with the Kyrgyz
(EBRD) in a statement released on May 16 expressed “deep authorities on improving the business climate and investing
concern” that the Kyrgyz parliament could decide to begin the to change people’s lives for the better,” the EBRD added.
Russian ice cream
consumption to hit
new record of 3.1kg
per person
Russians love ice cream, but who doesn't? This year they are expected to
Ben Aris in Berlin consumer a record 3.1kg per person.
B
ritish Prime Minister Winston Churchill was driving And consumption continues to grow. The amount of ice cream
through Moscow during the depths of winter on his consumed in Russia is expected to grow by 1% by the end of
way to meet Stalin during WWII. On passing a cluster 2021 to 3.1 kg per person, setting a decade-long record, the
of Russians on a street corner Churchill asked his aide de camp Centre for Industry Expertise of the Russian Agricultural Bank
what the people were doing out in such cold weather. said on May 4.
“They are eating ice cream, sir,” the aide told him. "The volume of ice cream consumption in Russia at the end
of the current year will increase by 1%, to a record over the
Churchill paused and replied: “These people will never past 10 years, that is 448,000 tonnes, or 3.1 kg per capita.
be defeated.” The jump in consumption would be a continuation of the
gradual increase in demand over the past 10 years. Given the
Everyone loves ice cream and even in Soviet times the one cold Russian climate and the seasonal aspect of ice cream
consumer luxury that remained widely available was the consumption, a further increase in export volumes may
Plombir ice cream cups, beloved by Soviet children and still become a growth point for Russian producers," the centre
available today. said as cited by Tass.
Since the fall of the Soviet Union ice cream consumption has Russia produced 451,000 tonnes of ice cream in 2020, up 8%
risen as a plethora of fancy imported ice creams arrived on the year on year, which is expected to climb to 463,000 tonnes
market. It is telling that amongst the very first foreign investors by the end of this year. And Russia is starting to sell its ice
into the newly independent Russia was Baskin Robbins, the cream abroad, with exports growing eight-fold over the last
world's largest chain of ice cream speciality shops. decade from 3,000 tonnes in 2010 to 26,000 tonnes in 2020,
www.bne.eu
8 I Companies & Markets bne June 2021
mostly going to other Commonwealth of Independent States Ice cream sales in Russia were hurt by the coronacrisis after
(CIS) countries. Exports are expected to reach a record 30,000 kiosks and cafes were forced to close during the lockdown,
tonnes by the end of 2021. but consumers simply shifted to ordering online or buying ice
cream in stores.
Russian manufacturers have turned to Soviet recipes, which
have mass appeal and enjoy sustained demand from the And the business is increasingly domestic after imports are
former Soviet republics. The biggest importer of Russian ice expected to diminish again by 20% this year to 15,000 tonnes
cream is Kazakhstan, which in 2020 boosted its volume of against 19,000 tonnes a year earlier, partly as ice cream
imports by 27%, to 11,200 tonnes, and in monetary terms by imports are very sensitive to FX fluctuations, and last year’s
2%, to $20mn. ruble devaluation made imports expensive.
The United States is also a big buyer of Russian-made ice At the same time, the government is working to improve food
cream thanks to its large Russian diaspora population. Exports standards and a new system of labelling will be introduced
to the US tripled in 2020 to 3,800 tonnes, worth $9.2mn. this summer as well as a green certification standard.
BRICKS & MORTAR:
What happens if
Russia’s mortgage
subsidy programme
ends?
Residential housing construction and sales have been booming since the
government introduced a mortgage subside programme, but will probably
Ben Aris in Berlin end this summer.
A
lmost as soon as the double whammy of the The Kremlin’s long-term goal of increasing homeownership
coronavirus (COVID-19) pandemic and a concurrent got a boost too, as it acts as “social cement” and improves the
collapse in oil prices hit Russia’s economy last average quality of life. Owning property, so the argument
March, the government reacted by introducing a mortgage goes, makes people less likely to protest, as well as more
subsidy programme that cut the effective rate for would-be subordinate to the state thanks to the dependence on state
homeowners buying newly built residential housing to 6.5%. services and their personal investment into bricks and mortar.
The programme has been a resounding success; in fact maybe
a little too successful, as the Central Bank of Russia (CBR) Russians jumped at the deal. Real estate developer says that
is worried that a housing bubble may be forming as demand each percentage point that rates are reduced by adds millions
for new apartments has ballooned. of new customers for whom a mortgage becomes affordable.
And rates have been falling steadily for over six years, each
The programme is due to end this summer and industry year significantly expanding the pool of potential buyers.
players think that it may be cancelled or at the very least
trimmed down. What will happen then is not clear. The rate cuts stopped this March this year when surging
inflation finally forced the central bank to bring its six-year-
The goal of the programme was multiple. The increased long easing cycle to an end, but economists believe that the
demand for housing allowed construction companies to keep current surge in inflation is the hangover from last year’s crisis
working and avoided layoffs in one of the key growth-driving and rates could start to fall again as soon as next year.
sectors of the Russian economy.
Housing boom
The flow of loans also provided relief to the banking sector, Since the mortgage market appeared in about 2003 –
where mortgage loans have become one of the main money the first mortgages were offered by Delta Bank, a USAID
earners for the sector. funded initiative, as growth of mortgage use is equated with
www.bne.eu
bne June 2021 Companies & Markets I 9
Share of mortgages in sales Residential completions*
Source: Company data, VTB Capital Research Source: Rosstat, VTB Capital Research;* 1Q21 vs. 1Q20; Figures include housing,
constructed by individuals in locations designated for gardening
promoting democracy by the US government for many of the with wide market offers,” VTB Capital (VTBC) said in a note.
same reasons that appeals to the Kremlin – the market really “Quarterly mortgage origination was up 53% y/y to RUB1.2
only took off in around 2008 and has been growing very trillion, while the [interest] rate hit a record low 7.0%.”
strongly ever since.
As a group the listed developers guide for a blended volume
Initially Russians used a mortgage credit as a bridge loan uplift of 25% y/y for this year, reports VTBC, ahead of
between buying a bigger place and being able to sell their analysts' expectations, although that result may come in lower
old place to pay for it. Mortgages were often paid off in full if the government chooses to end the subsidy programme.
within a few years or less. Few held their mortgages to term.
But even if the programme is ended the rates may come
That has changed dramatically now. Developers report as down anyway. The previous programme subsidised rates
much as half to three quarter of their sales are now paid for to bring them down to 10% when the market rate was 12%
with a mortgage and that the borrower intends to keep the but following the CBR cuts they fell below 10% on their own
credit to term. and that programme was ended. While the CBR rates are
anticipated to climb to 5.5% this year, crisis-induced inflation
he mortgage market has proved a boon for the four market
T pressure is expected to fade as the year wears on and the CBR
leaders, PIK, Etalon, LSR and Samolet Group, which have could go back to cutting rates next year that will bring them
seen steady growth and a steadily expanding pool of potential down again to the 6.5% level or lower.
customers.
Housing bubble?
PIK is the stand-out front-runner in the business and an The decision on ending the programme has not been made and
investors’ darling, putting in strong results quarter after the big increase in demand it has created has led to the increase
quarter. Samolet is the new kid on the block, profiled by in housing prices to the point where the CBR has said out loud
bne IntelliNews just before its IPO last year, having listed on that it is worried about the appearance of a housing bubble. The
Moscow Exchange (MOEX) in October with a valuation of regulator is against extending the programme again.
$750mn, and has seen its share price soar by a third in the
first quarter of trading this year. PIK was also profiled by “Primary market prices have been climbing in the last twelve
bne IntelliNews in 2017 at the start of its run and has seen months, driven by developers’ price over volume strategy,
its share price go up by 60% in the same period. their desire to maximise returns for projects under pre-escrow
regulation and elevated demand, particularly due to tailwinds
All in all, Moscow housing sales were up a robust 22% last year, from the subsidised mortgage programme. As primary deals
despite the coronacrisis, and residential sales soared across the added 30% y/y in 1Q21 in Moscow, prices climbed 20% y/y,”
country thanks to the government subsidy programme. The VTBC reports.
market leaders saw their profits rise even faster, with Samolet
seeing revenues up by a third (36%) in the first quarter this year This supported the primary market, with prices in Moscow
alone, its first financial results since going public. adding 21% y/y in 1Q21, according to Metrium, while in
St Petersburg prices added 26% y/y in 1Q21, according
“The sector results were mostly strong in 1Q21, potentially to Real Estate Bulletin. Secondary markets in both cities saw a
featuring one of the last periods of full support from subsidised comparable advance in prices (up 18- 23% in 1Q21), according
mortgages and an outperformance by leading developers to R&D Centre ‘City Development’ and Real Estate Bulletin.
www.bne.eu
10 I Companies & Markets bne June 2021
Debating the programme to rise dramatically but the overnight rate has already been
The mortgage lending programme is a large-scale subsidised raised from 4.25% at the start of this year to 5% after the
primary market lending programme introduced in late April CBR hiked in March (25bp) and April (50bp). CBR Governor
2020: the current cumulative origination stands at RUB1.1 Elvira Nabiullina kept the door open to more hikes later
trillion ($14.8bn) versus total mortgage lending of RUB4.2 this year and analysts say another 50bp could be added to
trillion ($56.7bn). This is about 1% of annual GDP and about the prime rates.
a quarter of all mortgage lending during this period.
Samolet told bne IntelliNews in a recent interview that it will
The first programme had the following conditions: not increase prices and that banks offering loans won’t raise
rates as fast as the central bank to maintain their market share
• borrowing rate of 6.5% or less; in what has become an ultra-competitive segment.
• only primary market borrowing is eligible, i.e. new housing;
• max borrowed amount of RUB8mn and RUB3mn for Moscow In the first quarter the area under construction of residential
and St Petersburg versus other regions respectively; real estate contracted by 13% y/y to 100mn sqm, the sixth
• minimum down payment of 20%; consecutive quarter of contraction in Russia, as smaller and
• total lending cap under programme at RUB740bn; medium-sized players were unable to adjust their operations
• the lender keeps full credit risk and is reimbursed monthly an to the new escrow legislation requirements introduced last
amount equal to Central Bank of Russia's [key rate + 3pp max year after financing construction using pre-sales was banned.
(6.5%, lending rate)] on the residual size of the loan; The smaller companies lack access to large-scale funding and
• expiry date set at 1 November, 2020. are being pushed out of the market.
However, in November the programme was extended with the “Thus the sector consolidation continues, with the share of
following changes: the ten largest companies increasing 1.5pp y/y to 19%. The
implementation of escrow accounts is picking up, and 57% of
• max borrowed amount increased to RUB12mn/RUB6mn the total portfolio (+27pp over the last 12 months) is being
for Moscow and St Petersburg/other regions; realised under this scheme as of March 2021, Dom.RF figures
• min down payment reduced to 15%; indicate,” VTBC reports. “According to the United Registry of
• total lending cap lifted to RUB1.8 trillion; Homebuilders, 1,978 homebuilders in Russia have portfolios
• expiry date pushed to 1 July 2021. of less than 100k sqm and account for 40% of the area under
construction, which could trigger a further narrowing of the
The programme is due to expire in the summer but analyst sector,” VTBC adds.
say it may be extended, although they are expecting more
adjustments to the conditions such as the possible exclusion In the first quarter residential completions increased 15%
of regions with the largest price rises. y/y to 17.8mn sqm, reflecting a pick-up in the construction
pipeline in the second half of this year.
VTBC says the current debate is mostly shaped by an attempt
to reconcile three visions for the programme: The total amount of construction permits issued during the
quarter reached 871 (+15% y/y) for a capacity of 7.2mn sqm
• A 'growth focused' vision of the programme assumes that vs. 4.7mn sqm as of the first quarter, as the overall project size
it has been effective in supporting housing demand and has increased.
suggests that it thus needs to be extended – preferably
committing public support for another 34 years. “The second quarter of this year will have a low comparison
• A 'price stability focused' vision of the programme assumes base, as last year construction sites were frozen from early
that it has been key to the spike in real estate prices, and thus April to mid-May in a number of regions, including the core
ultimately reduced affordability, so if housing inflation were Moscow Metropolitan Area,” VTBC reports. “It represented
to be allowed to run unchecked it could ultimately result in 30% of country completions in 1Q21 and 50-100% of sales
new financial vulnerabilities. Therefore, this argument goes, for listed developers, while its higher prices (a more than
the programme must be either abandoned or constrained to twofold premium to Russia) brought favourable construction
a regional instrument. economics to local operators.”
• A 'public finance focused' vision of the programme is
concerned with its efficiency, i.e. how much marginal The government estimates that completions will correct 5%
demand the programme delivered per unit of funding and y/y to 78mn sqm in 2021, according to Deputy Prime Minister
with accumulating floating rate liabilities at uncertain Marat Khusnullin. The long-term target of 120mn sqm annual
future cost for the tax payer. completions by 2030, a goal that is part of the 12 national
projects, remains intact, implying a 2020-30 compound
What next? average growth rate (CAGR) of 4% versus the 3% observed
The end of the CBR’s easing cycle will already put a brake on over the last ten years.
residential real estate growth. Interest rates are not expected
www.bne.eubne June 2021 Companies & Markets I 11
Serbia aims to boost
energy and mining
sector to 10% of GDP
in 10 years
International mining Rio Tinto is developing the Jadar lithium-borates project
bne IntelliNews in Serbia.
S
erbia's mining and energy sector is expected to The proposed amendments to the Law on Energy will enable
contribute 10% of the country’s GDP within 10 years, the harmonisation of domestic legislation with the EU acquis
the government announced on May 21. communautaire, ensure security of supply and supply of
energy and energy sources, and enable the entry of new
“This year, we are drafting an important legislative framework participants in the energy market. The amendments to the
in the field of energy and mining, but we are also making law create the legal basis for the adoption of the Integrated
very important decisions and embarking on a new, green and National Energy and Climate Plan.
sustainable path of energy and mining,” Serbia’s Minister of
Mining and Energy, Zorana Mihajlovic, said. The main goal of passing the law on amendments to the Law
on Mining and Geological Research is to create conditions for
Serbia has already adopted a package of legislation on the more efficient and sustainable management of mineral and
energy and mining sectors. On April 12 the parliament adopted other geological resources, as well as to increase investments
two new laws – the Law on the Use of Renewable Energy in geological research and mining.
Sources and the Law on Energy Efficiency and Rational Use of
Energy – as well as amendments to two existing laws, the Law
on Energy and the Law on Mining and Geological Research. “Among the mineral resources in
Mihajlovic noted that the new Law on Energy Efficiency and Serbia are deposits of coal, iron ore,
Rational Use of Energy to help citizens improve insulation
in their apartments stating that Serbia now consumes
gold, silver, copper, zinc and lithium
approximately four times more energy than the EU average. worth up to $200bn”
The first contracts with citizens regarding the improvement of
energy efficiency are expected to be signed at the end of the Among the mineral resources in Serbia are deposits of coal, iron
summer with the help of local governments, she said. ore, gold, silver, copper, zinc and lithium. Earlier, Mihajlovic
said in an interview with Happy TV that the estimated value of
According to Mihajlovic, this year these project will be mineral reserves in the country exceeds €200bn.
financed by local self-governments and the state budget,
but the next year, Serbia expects financial support from the Chinese company Zijin said on April 7 it plans to invest $408mn
international institutions. in production and ongoing projects in Bor and Majdenapek
mining complexes in eastern Serbia, and plans total investments
“We expect to have an average of around €150mn per year for of over $1.1bn in three years. However, Zijin has run into
such projects,” Mihajlovic said. controversy in Serbia, where Mihajlovic announced a week later
that the Jama mine owned by the company had been shut down
Meanwhile, the Law on the Use of Renewable Energy Sources by inspectors because it was polluting the environment.
(RES) aims to enable new investments in RES and enable an
increase in the share of RES in total energy produced. Also in Serbia, international mining Rio Tinto is developing
the Jadar lithium-borates project at a deposit it discovered in
The new law will increase the involvement of citizens in the Jadar river valley in 2004. The site is estimated to contain
the energy transition enabling them to become customer- 10% of the world's deposits of lithium. Rio Tinto reported a
producers, which means that electricity customers can instal maiden ore reserve in December, announcing that the Jadar
solar panels on the roofs of buildings to produce electricity project has the potential to produce both battery-grade lithium
for their own needs. carbonate and boric acid.
www.bne.eu12 I Companies & Markets bne June 2021
Turkey’s TAV seals
buyout of 85% stake
in Almaty International
Airport
The airport is located around 15km from Kazakh commercial capital Almaty,
Kanat Shaku in Almaty itself about 430km from the Chinese border.
T
urkey’s TAV Airports and Kazakhstan Infrastructure airlines Bek Air, SCAT Airlines and Qazaq Air also use the
Fund (KIF) have completed the buyout of Almaty airport as their base.
Airport, with TAV taking a stake of 85% and KIF,
managed by VPE Capital and backed by Kazyna Capital Major regional hub
Management (KCM), receiving the remaining 15%. The Almaty, prior to the pandemic, was a major regional
capacity of the airport is to be doubled with a $200mn transportation hub for 26 passenger and eight cargo airlines
investment. serving multiple destinations. Air Astana provided nearly half
of the passenger traffic, whereas Turkish Airlines led in cargo.
The deal has been sealed despite the difficulties posed by the
coronavirus pandemic. The previously agreed purchase price Roland Nash, partner at VPE Capital, said: “This project
of $415mn was revised down to $365mn to take account of represents one of the largest foreign direct investments into
decreased global passenger volumes. Subject to the recovery Kazakhstan outside of the natural resources sector. The
of passenger traffic to pre-pandemic levels, the consortium expansion and renovation of the airport will deliver significant
will pay an additional $50mn in coming years. economic and social benefit for the Republic of Kazakhstan,
with the new terminal expected to increase total passenger
The project in Kazakhstan's commercial capital has been capacity to at least 14 million passengers a year. We are proud
hailed as one of the largest single foreign direct investments of our role as a major driver of this project and as a catalyst
(FDI) in the Central Asian nation outside of the resources for attracting international capital and expertise into an
sector as it is set to bring in over $600mn in foreign capital important infrastructure asset in Kazakhstan.”
while also drawing leading international airport management
expertise for a key Kazakh infrastructure asset. TAV will put up the investment of $200mn over the next
three years to build the new international terminal, which
New terminal, modernisation is set to double the airport’s capacity, taking it to over 14mn
The completion of the buyout was the first step in a $655mn passengers annually.
infrastructure project that will feature the construction of a
new international terminal, the modernisation of the domestic The World Bank Group’s International Finance Corporation
terminal and the adoption of the International Air Transport (IFC) and the European Bank for Reconstruction and
Association’s (IATA's) Optimum Level of Service standards Development (EBRD) are financing 50% of the acquisition
across the facility. and 100% of the new terminal investment with a loan. The
financing is scheduled to close by the third quarter of 2021.
Ainur Kuatova, CEO of Kazyna Capital Management, which
played a key role in facilitating the deal, said: “Kazyna Capital TAV Airports president & CEO Sani Sener, said: “Almaty is
Management’s mission is to promote sustainable economic strategically located on ‘the modern Silk Road’, established
development in the Republic of Kazakhstan, and this project from China to Europe and Africa through air transport.
does just that – at scale. We’re proud to be part of this Kazakhstan is the largest country in the region – both
milestone project that brings in excess of USD 600M in foreign geographically and economically – and Almaty is the largest
capital along with leading international expertise into a key city in the country producing 20% of Kazakhstan’s GDP. “
infrastructure asset. For every dollar that KCM is investing,
foreign partners are investing more than 20 dollars.” “As part of the largest airport management group globally,
we’ll be promoting Almaty and Kazakhstan as the business
Almaty Airport, the home of Kazakh flag carrier Air Astana, capital of the region, as a country with a rich cultural heritage
served 6.4mn passengers in 2019, up 13% y/y. The airport and diverse tourism opportunities,” Sener added. “Our
was able to deliver a net profit in 2020 despite the pandemic- expertise in route development will help to increase the
driven traffic drop to 3.6mn passengers during the year. Local connectivity of Almaty to the world.”
www.bne.eubne June 2021 Companies & Markets I 13
bne:Funds
Bucharest Stock
Exchange sets new
records as it shrugs
off the coronacrisis
Clare Nuttall in Glasgow Radu Hanga, chairman of the board of the Bucharest Stock Exchange.
T
he Bucharest Stock Exchange (BVB) has been setting He explains: “There is an excess of liquidity in the market coupled
record after record in recent months. Not only has its with very low financing costs. If you look at the banking
main index, the BET, soared past its peak before the sector, lending is growing but at a slower rate compared to the
global financial crisis to reach a new all-time high, there has deposit base. In Romania, we see banks accumulating cash in
also been intense activity on AoRO, the dedicated market for deposits, a low interest rate for deposits, and a decline in the loan
smaller companies that has seen a string of new listings and to deposit ratio.” That has allowed banks to be more selective in
bond issues. The chairman of the board of the BVB, Radu picking solvent companies that are well capitalised to lend to.
Hanga, talked to bne IntelliNews about the reasons behind
the surge in activity. “Here we come into the picture as exactly the channel that
feeds capital into companies. The local financial sector is
In April, the BET exceeded the threshold of 11,000 points for the developing now, standing not only on bank financing but also
first time in the exchange’s 23-year history, and has continued on the capital market,” adds Hanga.
to rise, peaking at over 11,700 on May 12 and remaining over
11,600 since then. The BET-TR, which includes dividends, This is part of a global trend, and markets around the world
has also set new records. In the first three months of 2021, the have continued to rise since the “vaccine bump” last autumn,
two indices soared by 14% and over 12 months the BET rose by when breakthroughs by major pharma companies indicated
46.7% and BET-TR by 54.4%. The value of transactions with all the end of the coronavirus (COVID-19) pandemic had come
types of financial instruments increased by 30.4% at the end a bit closer. However, BVB was the first of the stock exchanges
of the first three months of 2021 compared to the same period in the eastern EU member states whose main index (not
last year, according to bourse data. including dividends) outperformed the boom years before
the previous crisis.
This followed record levels of activity in 2020, when investors
traded financial instruments amounting to RON18.3bn There’s a virtuous circle as the current high valuations of
(€3.77bn), up by almost 25% on 2007, the previous high. companies on the BVB make the market more attractive for
other companies. “Of course companies are now looking
Looking at the reasons for the strong performance, one is at the stock exchange as a financing route in connection to
the Romanian capital market’s upgrade by FTSE Russel to the valuations they expect. Now we have quite interesting
emerging market status. In September 2020, the BVB held valuations that increase our visibility and attractiveness as
its first session as an emerging market, which put it into the a financing route,” Hanga says, reporting a strong pipeline
universe targeted by a wider category of investors, namely of companies at various stages of addressing both the main
emerging markets funds that together have billions of euros market and AeRO.
under management.
The biggest IPO in the pipeline is that of state-controlled
“The upgrade to emerging market status is one factor which hydropower company Hidroelectrica. Anticipated for years
increased the visibility of the market for foreign investors,” and put back multiple times, the latest from the company’s
says Hanga. management is that Hidroelectrica will launch on the
exchange potentially as soon as the end of this year. Given the
“On the other hand we have the local ecosystem with higher sheer size of the company – its market value is estimated by
liquidity and lower interest rates, which creates attractiveness minority shareholder Fondul Proprietatea at over €5bn – this
for alternative investments like the Bucharest Stock Exchange.” is an important event for the Romanian capital market.
www.bne.eu14 I Companies & Markets bne June 2021
“We are doing our best in order to prove that the Bucharest The first company to list on AeRO back in 2015 was from the
Stock Exchange is the best place to be for Hidroelectrica, IT sector. Six years later, Bittnet Systems announced it was
in order to increase the transparency, the image of the entering the FTSE Global Micro Cap and FTSE Total-Cap
government if it decides to do this step," says Hanga. "We indices. More recent companies to tap the market were online
rely on the fact that given the very good performance of the furniture and home decor retailer Vivre Deco and cyber-
already listed state-owned companies we are going to see steps security company Safetech.
made by the state in this direction. If this is going to happen, it
will help us in order to obtain the emerging market status also Agroland, operator of the largest network of agricultural stores
from MSCI. But we are not relying only on Hidroelectrica. We in Romania, was listed on the AeRO market on March 1. The
have two IPOs on the main market in the pipeline and we see company’s shares soared over four times in the first trading
the picture already improving in this area.” day when its market capitalisation reached RON244mn. The
very latest listing was by dairy company Laptaria cu Caimac,
Meanwhile, there has been a positive evolution in the AeRO which went public on May 21.
market over the last two to three years. AeRO was launched in
2015, taking over from the former Rasdaq platform that hosted The next goal
smaller, mainly former state-owned companies following Asked what the BVB’s new goal is after achieving its long-
the mass privatisations of the 1990s. Recently, however, it held ambition to be elevated to emerging market status – the
has been the go-to source of financing for smaller Romanian driving force behind multiple reforms in the last few years –
companies; the requirements for AeRO are less stringent than Hanga says there is still a lot to do to grow the importance of
for the BVB main market. the BVB as a financing route for the local market.
“We see the ecosystem improving. The smaller companies are “Our target is to increase the presence and the importance of
looking with greater interest towards capital market financing the Bucharest Stock Exchange as a financing source for the
and of course that translated into a lot of new listings, especially Romanian economy. This is a story that is not going to end.
on the AeRO market. We see this tend accelerating, in terms One of the strategic pillars for the Bucharest Stock Exchange
of liquidity and the market capitalisation of the AeRO market, is to increase the market capitalisation of the exchange
which is reaching new highs,” Hanga tells bne IntelliNews. towards 20% of Romania's GDP."
“In 2019-21, more and more private entrepreneurial local The fourth edition of the BVB’s Made in Romania – aimed
companies have been using the platform as a way of financing. at the development and promotion of the Romanian
Companies are raising capital in the form of debt, through bond entrepreneurial environment – launched in April, for the
issues, and companies are raising equity using the AeRO market. first time using a new platform developed in partnership
The numbers are quite spectacular: in the first four months of with Microsoft Romania. The aim of the scheme is to
this year alone, there have been nine bond issues on AeRO and increase the visibility of the local entrepreneurial system,
seven companies listing. A few weeks ago there was a period and bring together entrepreneurs, investors, brokerage
when we had almost daily events with companies coming to the houses and advisers.
market. We see this trend continuing going forward.
Around 600 comparnies have taken part in Made in Romania,
“The information we have from the brokerage community is out of which some have issued bonds and others have ended
that there is a strong pipeline of companies at different stages up listing. The financing rounds that companies in the
of accessing the market, not only for AeRO; we also have a programme have carried out in recent years through the
smaller companies addressing the main market through IPOs.” BVB have a total value of around €80mn.
While the BVB is open to companies from all sectors, it has Once the pandemic recedes, the BVB plans to step up its
been actively working with certain sectors that are better efforts among retail investors. In addition, the bourse recently
represented in the Romanian economy and have strong launched an initiative to improve research for companies that
growth potential, specifically technology and agriculture. again will help to raise the visibility of listed companies.
The exchange is getting closer to the two sectors to raise its
visibility as a financing opportunity. The BVB’s management are also looking at diversifying
revenues streams and its product portfolio, for example by
IT, says Hanga, has been a strong driver of the economy in becoming more active in the data vending area. Probably
the last few years, and to tap into its potential the BVB signed the most important development is the central counterparty.
a memorandum of understanding with the highly successful This is being built by the Bucharest Stock Exchange in
local equity crowdfunding investment platform Seedblink in partnership with OPCOM, the Operator of the Romanian
March. The two will work together to ease access to financial Electricity and Gas Markets. This co-operation will bring into
capital for companies, for example by supporting promising the market derivatives not only on stocks and indices, but
tech start-ups from SeedBlink’s portfolio to assess the also on energy products.
opportunity to go public.
www.bne.eubne June 2021 Companies & Markets I 15
bne:Deal
Leading Russian
supermarket chain
Magnit buys rival Dixy
One of Russia's two leading supermarket chains Magnit has bought the third-
largest store Dixi in a deal that will significantly boost Magnit's share of the
Ben Aris in Berlin two most lucrative markets in Russia: Moscow and St Petersburg.
R
ussia’s regional supermarket specialist and one of the investors’ darling trading with a p/e ratio multiple times
two biggest chains Magnit is in a deal to take over higher than the bulk of Russian stocks. However, minority
rival Dixy and add over 2,500 supermarkets to its shareholders Prosperity Capital Management called the
distribution network, almost doubling its size in the process, deal a “spit in the face of investors”, as the stake was just
Magnit said in a press release on May 18. shy of the 30% threshold that would have triggered
a mandatory buyout of minorities. Galitsky retained 3%
Magnit will acquire the shares in Dixy through its main of the company’s stock and could have sold 32% to VTB,
operating subsidiary Tander and take over the 2,651 stores triggering the buy-out rule.
in Russia owned by the Dixy Holding Limited.
In 2018 X5 surged passed Magnit to become the biggest
Dixy is in the top five largest chains in Russia and has been retailer in Russia on a revenue basis, but in 2019 a new
struggling for years to lift its game to compete directly with management team took over and has started to put the
Magnit and the current market leader X5 Retail Group, but business back on track, Jan Dunning, president and CEO
has never quite managed to pull it off. of Magnit, told bne IntelliNews in an exclusive and in-depth
interview in December.
“The total revenue of Dixy stores acquired (cRUB300bn) is
about 18% of current Magnit’s. Thus post acquisition Magnit’s Dixy bound
revenue to come to RUB2 trillion – pretty close to X5, and gives Dixy always had big ambitions and that the 2014 sanctions
a good chance to catch up the leader’s place in the future,” imposed on Russia following the annexation of Crimea were
Sova Capital said in a note. a boon to large organised retailers as they forced a process of
consolidation on the sector and increased both the revenue
and market share of the leading chains, the president of the
“Dixy is in the top five largest chains company at the time, Ilya Yakubson, told bne IntelliNews in an
interview in November 2015.
in Russia and has been struggling
But the company consistently failed to meet its revenue targets
for years to lift its game to compete and couldn't close the gap with its larger rivals. Dixy delisted
directly with Magnit and the current from Moscow Exchange in 2018 and bought out the largest
minority shareholder Prosperity Capital Management, which
market leader X5 Retail Group” was a big investor in Dixy as well as Magnit, paying RUB8.9bn
($150mn) for its 20% stake.
Magnit has also had its problems. Previously holding a In September 2019 it merged with liquor store chains Bristol
commanding lead in the market, the company went off track and Red & White to become the third biggest retailer in Russia.
after major arguments over direction broke out amongst the But even that move was not enough to turn the company’s
leading managers. fortunes around.
Magnit’s founder and CEO Sergei Galitsky decided to quit Still, Dixy remains a major player amongst the ruthlessly com-
and sold a 29% to state-owned VTB Bank in February 2018, petitive Russian supermarket scene. Its 2020 annual revenue
in a controversial deal. At the time Magnit was a portfolio was RUB281.4bn ($3.8bn) and in addition to the large net-
www.bne.eu16 I Companies & Markets bne June 2021
out the remaining minority shareholders, scooping up his
first asset in the retail sector.
Dixy’s president Yakubson’s analysis that a consolidation
of supermarkets happens in times of crisis seems to still be
holding true as Russia’s economy has been not only hurt by
multiple shocks in the last year, but the eight-year long decline
in incomes has also put a lot of pressures on retailers, who
are slowly coming together to gain more market power and
so better compete with the dwindling number of increasingly
powerful rivals on the market.
Agreement and deal price
work of stores it operates 39 superstores under the Megamart “Magnit has entered into an agreement with Mercury Retail
brand that generated revenues of RUB17.4bn last year. Group Limited to acquire 100% shares of Dixy Holding
Limited. The deal’s price is based on the current enterprise
The majority of the convenience stores are located in Moscow value of RUB92.4bn ($1.3bn) and is subject to certain
and its surrounding region (1,329) as well as in St Petersburg adjustments depending, among other things, on the net debt
and its surrounding Leningrad region (458 outlets). and net working capital changes calculated as of closing date,”
Magnit said in a press release.
The remainder of the stores in the convenience format are
located in the Central, North-West and Urals federal districts. The company went on to expand on its expansion plans
Most of the superstores operate in the Sverdlovsk region, and capex.
with four stores located in the Tyumen region, according
to the company. “At this stage Magnit’s full-year 2021 store opening, redesign
and capex guidance published on February 4th, 2021 remains
The total selling space of the assets to be acquired is unchanged,” Magnit said. “The company’s 2021-2025 long-
approximately 854,000 square metres, of which approximately term targets, including store openings, redesign, e-commerce
778,000 sqm are in the convenience format and 76,000 sqm development, margins, working capital improvements,
in the superstore format. Over 90% of the selling space in the leverage, dividend payments, etc. are also confirmed without
any changes. It is expected that completion of the transaction
will not limit the company’s ability to continue dividend
“We will significantly strengthen our payments,” Magnit added in a comment that will please
investors after it paid out $666mn in bigger than expected
market positions in both capitals, dividends in April.
which are strategically important Jan Dunning, president and CEO of Magnit, commenting on
for Magnit’s further expansion in the deal said: “We are pleased to reach an agreement with
Dixy Holding Limited shareholders to acquire their business.
the country” Magnit’s key strategic priorities focused on return-driven
profitable growth stay unchanged. While organic expansion
in all core formats remains our primary focus, we are happy
convenience format is rented, while 74% of the selling space to selectively take advantage of this opportunity to support
in the superstore format is owned. In terms of floor space, further growth with the acquisition of the strong retail brand.
Dixy is the same size as Magnit. Upon completion of the transaction, we will significantly
strengthen our market positions in both capitals, which are
As part of the transaction Magnit will also acquire five strategically important for Magnit’s further expansion in the
distribution centres with the total space of 189,000 sqm country. High-quality locations, well-known brand and strong
located in Moscow, St Petersburg and the Chelyabinsk region. customer base in Moscow and St Petersburg will allow Magnit
to become one of the top-players in the respective regions.
For its part, Magnit’s Dunning told bne IntelliNews in the Moreover, given scale of the transaction this may substantially
interview that it was looking scale up its operations through improve our overall market position in the sector.”
organic growth as well as acquisitions.
For the meantime Magnit intends to keep Dixy’s business
Magnit already made a $1.78bn bid to buy Lenta in April 2019, as a separate legal entity with the stores operating under
another of Russia’s top five retailers, but was pipped at the existing Dixy brand. The deal awaits Federal Antimonopoly
post by steel tycoon Alexei Mordashov, who paid $729mn to Services (FAS) approval and is planned for closure before
by a 42% stake in the retailer as well as a cash offer to buy 31 August, 2021.
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